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Busting Unions Can Backfire On The Bottom Line

March 17, 1991

Labor: COMMENTARY

BUSTING UNIONS CAN BACKFIRE ON THE BOTTOM LINE

In the 1980s, U. S. employers pursued two sharply divergent strategies in dealing with organized labor. Some followed the examples set by President Reagan when he crushed the 1981 air-traffic controllers' strike, and by Frank Lorenzo, who used hardball tactics to cut labor costs at two airlines, Continental and Eastern. Others used an approach commonly associated with the Japanese. Ford Motor Co. and Cummins Engine Co., among others, established cooperative relations with unions, hoping that teamwork would boost productivity and quality and hold down costs.

It has taken time to tell which approach works better, but the evidence is coming in. Eastern Airlines Inc. is in liquidation, and Continental Airlines Inc. wallows in bankruptcy. So does Greyhound Lines Inc., which, according to the National Labor Relations Board, violated labor laws in an effort to oust its union.

'MACHO BEHAVIOR.' Even mighty Tribune Co. has tentatively agreed to sell its New York Daily News, having failed to oust its unions in a four-month strike or to settle with them. "What gets the headlines is macho behavior with high testosterone levels," says Audrey Freedman, the Conference Board's labor economist. "But over the long haul, moderate behavior is probably more efficient."

Of course, some companies, such as Phelps Dodge Corp. and George A. Hormel & Co., have broken unions. But these often may be Pyrrhic victories. In 1986, William N. Cooke, a Wayne State University professor of industrial relations, surveyed 56 unionized manufacturers that either ousted unions or developed cooperative relations with them in 1974 or 1975. After adjusting for changing market conditions and other factors, Cooke and a colleague reached a startling conclusion.

Employers that had tried teamwork --about half of the sample--reported a 19% increase over the decade in value added per employee, defined as operating income plus inventory divided by the number of workers. The combative employers reported a 15% decline. Apparently, this reflects the huge cost of withstanding a union-busting strike, plus the lingering effects on employee morale. These companies may eventually recover from such shocks. Still, adds Cooke, "our evidence suggests that cooperation seems to pay off the best, at least so far."

Putting aside the ethics of casting off longtime employees, the drawback in trying to break unions is the all-or-nothing gamble it entails. Lorenzo's bet worked in 1983 at Continental, where the unions were caught off guard and many workers crossed their own picket lines. But at Eastern six years later, the unions were ready, and feuding pilots and mechanics united to fight a common enemy. Eventually, the dispute became so personal that Eastern workers were willing to throw away their jobs rather than work for a man they disliked.

The Daily News showed that even good planning doesn't always help. Tribune executives spent more than a year and $24 million preparing for a showdown. They set up a mock newsroom to practice publishing under strike conditions. And, knowing that other companies had lost strikes when they couldn't deliver the paper, the News trained nonunion drivers and hired security guards to protect them.But when D-Day arrived last October, the company had overlooked one factor: the newsstands that sold 80% of all copies. Most of them dropped the News after requests--and some violence--by union members. The News's circulation never recovered, advertisers stayed away in droves, and losses hit $750,000 a day. In mid-February, frustrated Tribune officials finally agreed to bring in a mediator to forge a deal. But the animosities proved too great. The paper will be sold to British media baron Robert Maxwell--if he can win concessions from the unions.

The dispute didn't have to end this way. Although bargaining has fallen out of favor with hardline managers, it's still more efficient than ultimatums. Indeed, the New York Post got life-saving concessions last fall from the same unions that Tribune Co. decided to fight. The Post, however, was willing to compromise. In one week, the unions coughed up 20% salary cuts and saved the paper, at least for a while.

VALUE ADDED. As odd as it sounds, one prominent company even thinks unions can help. Over the past two decades, tiremakers have kept the United Rubber Workers out of most new U. S. plants. But Japan's Bridgestone Corp., which bought Firestone Tire & Rubber Co. in 1988, voluntarily recognized the URW this January at a $350 million plant in Warren County, Tenn., after a majority of the plant's 150 hourly workers said they wanted the union. Bridgestone officials say they see an advantage in having a union as a partner in the facility. "We saw a value added on, as opposed to a threat," explains Samuel L. Torrence, Bridgestone/Firestone Inc.'s human resources director.

After a decade in which management has gained the upper hand against unions, Bridgestone's approach isn't likely to catch on. But it looks no worse than the strategy of companies who aimed their biggest guns at labor--and shot themselves in the foot.Aaron Bernstein